Why Equalizing Retirement Plans is Still a Mess—Even When You Follow the “Rules”

Here’s the hard truth: if you must equalize, you’re stepping into a minefield. Even with guidelines, it’s messy, time-consuming, and rarely fair. But, if you have to do it, let’s talk specifics.

Rule #1: Never Equalize a 401(k) with Another Plan If contributions were made after the cutoff date, equalizing a 401(k) with any other account is a recipe for disaster. Why? Because you’re forcing clients to pay for a manual analysis of contributions—something that the plan would typically do for free. It’s like paying extra to make things more complicated. Why would you do that?

Rule #2: Keep Cash Balance Plans Separate A Cash Balance Plan isn't like other retirement accounts. It’s a pension with growth limits, thanks to conservative targets set by employers to ensure they can meet their promises. Mixing a Cash Balance Plan with a 401(k) is like expecting a turtle to keep up with a rabbit. Just don’t do it.

Rule #3: Avoid This Language: "Shall Equalize the Marital Share" This one’s the worst offender. Writing “shall equalize marital share” in settlement agreements leads to delays, misallocated shares, and frustrated clients. It’s a statement that sounds simple but opens a can of worms.

Why? The first question becomes: What is the “marital share”? Plan administrators won’t calculate it for you. If the account existed before marriage, you need to segregate the non-marital portion to determine the marital share. This creates ambiguity, additional work, and you haven’t even started equalizing yet.

So, What Should You Do Instead?

1. Nail Down the Marital Value First: Before you even think about equalizing, make sure you have a clear marital value for each plan. No guessing, no ambiguity.
2. Only Then, Match by Type: Let’s break it down. Suppose a tracing analysis shows: Party A’s Vanguard Traditional IRA has a marital value of $100,000. Party A’s TIAA 403(b) holds $80,000 in marital value. Party B’s SIMPLE IRA has a marital value of $60,000.

To equalize, Party A could transfer $60,000 to Party B from the Traditional IRA. But hold on—only after you’ve nailed down the exact marital value of each plan.

Could Party A pay that $60,000 out of the TIAA 403(b) instead? Sure, if you’re treating these retirement plans like cash. But here’s the catch: an IRA typically invests in mutual funds or stocks, while a TIAA 403(b) is made up of annuity contracts. On the surface, you’re transferring dollars, but underneath, they’re completely different beasts.

You’ve got to look under the hood. Every. Single. Time.

1. The Bottom Line: Equalization Still Isn’t the Right Answer Even with rules, equalizing retirement plans is messy, time-consuming, and unfair. It’s not about simplifying; it’s about cutting corners.

So let’s stop pretending that equalization is a real solution. It’s not. It’s a band-aid on a broken leg. Instead, focus on doing the hard work upfront—splitting each account the right way, so each party gets what’s truly fair.

Let’s get it right this time.